War: Ukraine-Russia
Ukraine’s Eastern Territory Still Being Nibbled Away but per UK Defense Intelligence, January 2025 was the second-worst month for the Russians in terms of personnel losses (48,000 killed and wounded), almost matching the record figures for December 2024 (49,000 killed and wounded) and handily exceeding November was the second largest at 45,000. If close to correct, that would place Russian casualties (dead and wounded) on average at 1,500 people a day or 837,000 since the beginning of the full-scale invasion. Even the North Koreans pulled back (after 50% casualties). Ukraine continued to hammer Russian refineries in order to hamper fuel supplies, with drones striking the Lukoil oil refinery plant in Kstovo, Russia’s fourth-largest. The attack comes just days after the Ryazan oil refinery, Russia’s third-largest, was forced to suspend operations after being hit. Reportedly, Russia had about 2.3 mbpd of refining capacity offline, a 12-year low, of its 6.5 mbpd total capacity. Russia loses both on export revenue as well as spending money for repairs. Moscow’s average daily production of crude oil hit a 20-year low last year, and this reportedly due to repairs on damaged facilities, less so to keep to its OPEC+ target. Ukraine assassinated another prominent leader in Moscow, killing pro-Russia paramilitary leader from eastern Ukraine in an explosion. A pro-Russia paramilitary leader from eastern Ukraine was apparently assassinated in an explosion in Moscow on Monday morning. Armen Sargsyan was part of fugitive former President Viktor Yanukovych’s inner circle and has been on an international wanted list since 2014.
Biden Targeted Producers with Sanctions, most prominently Gazprom and Surgutneftegaz, as well as 183 vessels that have shipped Russian oil, which would most affect 
China and India, Russia’s top buyers. Goldman Sachs estimated that vessels targeted by the new sanctions transported 1.7 mbpd of oil in 2024, or 25% of Russia’s exports. Trump has left these sanctions in place as negotiations were rumored. In the meantime, Trump still funds Ukraine with weaponry and ammunition to put pressure on Putin and to angle for Ukrainian resources to replace Chinese sanctioned metals for the US after the war. Putin also faces a massive war debt in the form of forced loans to defense contractors of at least $210-$280 billion – see graph right (note rebased to 100 and inflation-adjusted) – or almost equal to 20% of GDP in three years (full report: https://navigatingrussia.substack.com/p/russias-hidden-war-debt ).
Macro: Asia
China’s Trade Surplus Soared to a record $992 billion last 
year as exporters rushed to make up for sluggish demand at home and get ahead of Trump’s return to the White House, with exports to the US in December rising to the highest in two years, taking the total to $525 billion. The Chinese surplus with the 10 ASEAN countries also jumped to a record, with part of that likely driven by exports of parts for electronics, to be assembled and shipped to the US and elsewhere. Shipments to France and Germany climbed more than +6%, buoyed by exports of millions of electric vehicles and other products. However, Chinese demand growth for the world’s products lagged severely, with imports only expanding +1.1% in 2024, well below the +5.9% rise in exports. China said it would implement a 15% tariff on coal and liquefied natural gas products as well as a 10% tariff on crude oil, agricultural machinery and large-engine cars imported from the US in retaliation, though the real damage comes from new export controls on several elements critical to the production of modern high-tech products, including tungsten, tellurium, bismuth, molybdenum and indium. This was in addition to the restrictions placed in December on key elements such as gallium. While the US implemented a 10% tariff 
on China, the real restriction will be the enforcement of small packages shipped from China which have soared in value and volume over the last four years (see right). Part of this situation is because China enjoys preferential international postal rates set under treaty. Expect that to be targeted by Trump as well.
China’s Headline Real GDP officially increased +5.4% y/y in Q4, beating expectations for a 5.0% uplift, boosted by a series of stimulus measures launched since September with +5.0% for the full year, “aligning” with Beijing’s target. Headline economic activity data for December was slightly positive on balance as fixed asset investment grew +3.2% y/y in 2024 (vs. +3.0% in 2023). Retail sales accelerated from November’s low, gaining +3.7% y/y for the month of December and +3.5% y/y for full 2024 (vs. +7.2% y/y in 2023). Industrial production also improved sequentially, rising by +6.2% y/y last month and +5.8% y/y last year (vs. 4.6% y/y in 2023), mainly supported by faster rises in government stimulus. The unemployment rate inched up to 5.1% in December (vs. 5.0% in November), stable on the year. However, the longer-term trend is lower as China’s population shrank for a third straight year in 2024, falling to 1.41 billion as total debt exceeded 330% of GDP. Recall that China set a GDP growth goal of +5% for 2025, and announced a record stimulus package of 3 trillion yuan ($411 billion) of special treasury bonds gains to push the broad deficit to close to 10% of GDP (2020 COVID levels) in order to reach it. The race to bottom continues.
Japan Faces Higher Interest Rates and Inflation as its central bank raised rates again in January but still to a very low 0.5%. Markets expect one or two more 0.25% increases in 2025 but inflation is running well
above the traditional 2% target with core CPI hitting +3.0% in December. Japan’s overall labor cash earnings for December recorded a high +4.8% y/y, the most in 28 years. Expected labor wage growth was +3.6%. These numbers should push interest higher as inflation is more likely to accelerate. However, the BOJ has to consider the massive government debt and deficit that would likewise accelerate. It seems that the decades of massive spending are catching up to Japan.
Macro: US
The Federal Reserve Held Rates Steady at their January meeting as expected as unemployment remained low and inflation not as low as they would like (despite protestations that they are making “progress” to their 2% target). US GDP grew at an annualized rate of +2.3% in the fourth quarter and the Atlanta Fed has Q1 2025 at a stronger +2.9%, much higher than consensus. Fed rate cuts are only expected to be two for 2025 with the first in June. As deficits are expected to continue for the next six months at least at a $2 trillion run-rate, money supply should likewise increase, supporting inflation and asset prices. The big fiscal unknown is the impact of DOGE and any spending cuts that occur. Regardless in the short term, government debt and interest payments will continue to increase, which hit $1.153 trillion in the trailing 12 months through December 2024. This is now more than what the US government spends on defense. Unemployment dropped to 4.0% despite a lower- than-
expected growth in payrolls and average hourly earnings were higher than expected, implying inflationary fuel. The consumer price index increased a seasonally adjusted +0.4%, putting the 12-month inflation rate at +2.9%, well above the Fed’s target and core CPI annual rate was +3.2%, slightly better than the +3.3% outlook. Meanwhile, consumers remained stressed as pending home sales fell -5.5% m/m in December as mortgage rates held in the 7% range and the median household income necessary to purchase the median home for sale in the US ($118k) is almost 50% higher than the current median household income ($79k). Needless to say, this is an untenable situation. Trump has a lot of work to do but it should be no surprise that the populace wants something done to turn around the economic situation.
Macro: Europe
Eurozone Inflation Rose Again To +2.5% in January, defying the need for rate cuts for the ECB, despite which did just that last month lowering rates to 2.75%. The reasoning was economic growth: GDP was flat with a zero increase in the final quarter of 2024, down from a 3rd quarter reading of +0.4%. The German economy, Europe’s largest, contracted -0.2% for all of 2024, the second straight year of declining output. The Bundesbank predicted growth of just +0.2% for 2025 but warned that another contraction is possible there is a trade war. Prospects for the French economy (the second largest) are no better as the government there is deeply divided over how to deal with their budget deficit. The rut is deep and getting deeper.
All the best in your investing!
David Burkart, CFA
Coloma Capital Futures®, LLC
www.colomacapllc.com
Special contributor to aiSource